US gov’t sues AT&T/DirecTV, calls it “ringleader” of collusion scheme

The Department of Justice today sued DirecTV and its owner, AT&T, saying the satellite TV company colluded with competitors during contentious negotiations to broadcast Los Angeles Dodgers games.

Dodgers games have been blacked out in much of Los Angeles because pay-TV providers have been unwilling to pay the price demanded by SportsNet LA, the Dodgers channel operated by the baseball franchise and Time Warner Cable. But the DOJ’s antitrust division placed the blame for this situation on AT&T and DirecTV. In a complaint filed in US District Court in California, it alleges that DirecTV was a “ringleader” in a coordinated scheme with cable companies Cox and Charter, according to a DOJ announcement.

“Dodgers fans were denied a fair, competitive process when DirecTV orchestrated a series of information exchanges with direct competitors that ultimately made consumers less likely to be able to watch their hometown team,” Deputy Assistant Attorney General Jonathan Sallet said in the DOJ announcement. The lack of a competitive negotiation process is especially bad for consumers in a market like cable television, where customers have “only a handful of choices,” he said.

AT&T completed its purchase of DirecTV in July 2015, but the complaint covers a dispute that began before the merger and continues to this day. The Dodgers channel owners offered carriage licenses to the pay-TV companies in January 2014, but the channel is still not available on DirecTV, Cox, or AT&T’s wireline TV service. (Games are now available on Charter, which purchased Time Warner Cable this year.)

The lawsuit “alleges that DirecTV unlawfully exchanged competitively-sensitive information with Cox, Charter, and AT&T during the companies’ negotiations for the right to telecast the Dodgers Channel,” the DOJ announcement said. “Specifically, the complaint alleges that DirecTV and each of these competitors agreed to and did exchange non-public information about their companies’ ongoing negotiations to telecast the Dodgers Channel, as well as their companies’ future plans to carry—or not carry—the channel.”

The companies used this strategy “to obtain bargaining leverage and to reduce the risk that they would lose subscribers if they decided not to carry the channel but a competitor chose to do so.” The information these companies learned from each other “through these unlawful agreements” was a major factor in their decision not to carry the Dodgers channel, the complaint said.

AT&T said it will fight the lawsuit and blamed Time Warner Cable for charging unreasonably high prices. The asking price was reportedly about $5 a month per subscriber regardless of how many people watch the games.

“We respect the DOJ’s important role in protecting consumers, but in this case, which occurred before AT&T’s acquisition of DirecTV, we see the facts differently,” AT&T told Ars. “The reason why no other major TV provider chose to carry this content was that no one wanted to force all of their customers to pay the inflated prices that Time Warner Cable was demanding for a channel devoted solely to LA Dodgers baseball. We make our carriage decisions independently, legally, and only after thorough negotiations with the content owner. We look forward to presenting these facts in court.”

The DOJ complaint says that DirecTV Chief Content Officer Daniel York “orchestrated” the information sharing agreements with the other TV providers. DirecTV played an outsized role in negotiations because its satellite service is available throughout the LA area instead of just parts of it, the DOJ said.

DirecTV “was more susceptible than other [TV providers] to pressure to reach a deal with TWC,” the complaint said. Additionally, “Cox, Charter, and AT&T all viewed DirecTV as the competitor whose decision to carry the Dodgers Channel could force them to reach a deal with TWC, even if doing so meant paying a price above the one targeted in their internal financial analyses.”

The complaint cited e-mails and voicemails exchanged among the companies.

“[DirecTV CEO Mike] White sent an e-mail to Mr. York declaring that the [TV providers] ‘may have more leverage if we all stick together’ on the Dodgers Channel,” the complaint said. “Mr. York ‘[a]greed’ that ‘others holding firm is key.’ This e-mail exchange occurred right before the start of the 2014 baseball season and during the heart of TWC’s Dodgers Channel negotiations.”

Going forward, York “regularly communicated with his counterparts at Cox, Charter, and AT&T during their Dodgers Channel negotiations with TWC,” the DOJ said.

The DOJ asked the court for an order declaring that the information sharing agreements are unreasonable restraints of trade and that AT&T and DirecTV be “permanently enjoined” from sharing non-public information with other TV providers during programming negotiations. The lawsuit would not force TV providers to carry Dodgers games, but a restriction in information sharing could indirectly affect future negotiations.

Disclosure: The Advance/Newhouse Partnership, which owns about 13 percent of Charter, is part of Advance Publications. Advance Publications owns Condé Nast, which owns Ars Technica.